- The Australian dollar rebounded on Thursday, lifting to .7842 against the US dollar
- Based off its modelling, Westpac says the AUD is looking expensive
- Westpac says it may cap any further rebound in the Aussie next week
Westpac says the Australian dollar is looking “expensive” and “at risk of weaker price action”.
“The potent combination of further deterioration in yield spreads, limited support from commodity prices, increased focus on political risks and a crystal RBA clear message that ‘progress in reducing unemployment and having inflation return to target … is likely to be gradual’ has seen the AUD/USD head towards its 200 day moving average below 0.7800,” says Robert Rennie, head of financial market strategy at Westpac.
However, even with recent weakness in the Aussie, its price is still deemed to be looking a tad rich based off Westpac’s fair value model.
“Our fair value framework has continued to argue that the AUD/USD has been expensive for the last four weeks and is thus at risk of weaker price action,” Rennie says.
Outside of a sharp weakening in the USD near-term, Rennie says it’s hard to see what will turn the AUD rebound much further next week.